China's top state enterprises official admitted yesterday that closing down inefficient government-owned companies is both difficult and costly.
This year Chinese authorities plan to spend 80 billion yuan (US$9.6 billion) on writing off bad loans and helping laid-off workers as companies are shut down, said Li Rongrong, head of the State Economic and Trade Commission.
"As we move from a planned economy to a market economy, one of the biggest difficulties we face is to close down loss-making inefficient enterprises," Li said at a briefing on the sidelines of parliament's annual meeting in Beijing.
Anecdotal evidence suggests the problem is that many firms simply re-open once regulators look the other way, because of the short-term benefits in keeping the production going, even if it is backward, polluting or dangerous.
Despite the many obstacles China faces in cutting out the inefficient chunks of its state industries, Li claimed last year's efforts were a success.
A total of 700,000 workers were made redundant as the government closed down 460 enterprises, writing off 55.1 billion yuan in bad loans, according to Li.
The weeding-out drive in the state sector targets companies that use obsolete technology, waste resources, produce low-quality products, pollute the environment and fail to meet safety standards, he said.
Small paper mills and power plants are among businesses officials will put under keenest scrutiny because of their severe impact on the environment.
"They contaminate the water so heavily that there is no decent water for people to drink," Li said.
The government will also continue to crack down on coal mines in particular because many fail to conform with safety standards.